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Vedanta’s Rs 50,000-cr Odisha investment: How not to go about executing a mega project in India

It would be difficult to imagine how a cash pile of Rs 50,000 crore would compare with the tallest mountains in the Niyamgiri Hills of Odisha. However, the money's worth is reflected in a sprawling alumina refinery established by the Vedanta Group here a few years ago.

Surrounded by verdant mountains, the factory, with its giant chimneys towering over tiny cottages in small-town Lanjigarh, is proof of London-based billionaire Anil Agarwal's avowed ambition of turning Vedanta into a mining giant that would be comparable with the world's largest, the Australian BHP Billiton.

Vedanta Resources, based out of London, has revenues in excess of $14 billion with operations in Namibia, Zambia, Ireland, Liberia, South Africa and Australia, apart from India.

In order to raise his game, Agarwal spotted an opportunity in mining bauxite in Niyamgiri and refining it in the vicinity, a move that was expected to result in one of the most economical operations in the global aluminium industry.

The move was an entrepreneurial masterstroke given that the plant was to come up around the time when there was — and still is — a scorching demand for aluminium. Moreover, although Odisha is known to have substantial deposits of bauxite — an estimated 2,000 million tonnes as against the country's total deposit of 3,000 million — it has never been substantially mined on account of local resistance.

Vedanta decided to move with speed and aggression and built its infrastructure even before it had got the clearances required to mine Niyamgiri. Bad move, in hindsight. After all, the tribals in these parts had resisted the company's presence in the region for years and much of the land Vedanta Aluminium Ltd (VAL) — the associate company set up for the project — required was forest land, and hence required clearances.

In 2004, Vedanta entered into a memorandum of understanding (MoU) with the Odisha government for bauxite supplies; according to the agreement, roughly half the assured offtake of the total 150 million tonnes was to come from Niyamgiri.

Two years later, a 1 million tonne per annum (tpa) alumina refinery plant went on stream in Lanjigarh, roughly 15 km from the Niyamgiri Hills. Cost: Rs 5,000 crore. Another Rs 35,000 was invested in a 0.5 million tpa aluminum smelter and a 1,215 MW captive power plant at Jharsuguda in Orissa. Add to this an investment of nearly Rs 10,000 crore in a 2,400 MW independent power plant that group company Sterlite Energy has put up, which has linkages with the aluminum project. The short point: Vedanta has spent roughly Rs 50,000 crore on putting up the infrastructure to make aluminum without getting access to the raw material needed.

It doesn't look like that access is going to come about in a hurry.

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